Lexington Insurance GSA Co. v. Sentry Select Insurance Co.

The opinion of the court was delivered by: Gary S. Austin United States Magistrate Judge

ORDER DENYING DEFENDANT'S MOTION FOR LEAVE TO FILE A SUPPLEMENTAL ANSWER AND COUNTERCLAIM (Doc. 35 and 36)

I. Introduction

Pending before the court is Defendant, Sentry Select Insurance Company's ("Sentry" or "Defendant") Motion for Leave to File a Supplemental Answer to the First Amended Complaint ("supplemental answer") and Counterclaim that was filed on August 17, 2008. (Doc. 35 and 36). On September 1, 2009, Plaintiff, Lexington Insurance Company ("Lexington" or "Plaintiff") filed an opposition to the motion. (Doc. 46). Sentry filed a reply on September 11, 2009.*fn1 (Doc. 48). The Court examined the motion and determined that this matter was suitable for decision without oral argument pursuant to Local Rule 78-230(h).*fn2 The hearing scheduled for September 18, 2009, was vacated. Upon examining the motion and the third-party complaint, the motion is DENIED. II. Procedural Background

A. The Underlying Moran Action

During the early morning of July 12, 2005, Bear Trucking employee Robert Knieling ("Mr. Knieling") parked his long-haul tractor and trailer in an "Emergency Parking Only" portion of a California highway in Ventura County. Erquimedes Moran ("Mr. Moran") drove a utility truck, swerved off the highway, and collided with the rear of Mr. Knieling's trailer causing personal injuries to Mr. Moran and fatal injuries to Daniel Torres ("Mr. Torres"), Mr. Moran's passenger.

Prior to the accident, Sentry had issued a primary commercial liability policy ("Sentry policy") with a $1 million limit of liability for commercial automobile liability coverage to Bear Trucking, Inc. ("Bear Trucking"). Lexington had also issued a stand alone excess liability policy ("Lexington policy") to Bear Trucking with a $4 million per occurrence limit in excess of Sentry's $1 million policy's for automobile liability.

Jacqueline Torres pursued her wrongful death claim. A trial was held in April 2007 resulting in a $7 million verdict which assessed 80 percent liability against Bear Trucking and Mr. Knieling for a $5.6 million net verdict. On July 9, 2007, the trial court conditionally granted Bear Trucking and Mr. Knieling's motion for a new trial unless Jacqueline Torres accepted a remittitur to $2.6 million. The trial court found error in apportionment of more than 50 percent fault to Bear Trucking and Mr. Knieling. On July 13, 2007, Jacqueline Torres accepted the remittitur in the amount of $2.6.

B. The Present Lexington v. Sentry Coverage Action

In the instant action, Lexington contends that Sentry breached its obligation of good faith and fair dealing in conducting the defense of Robert Knieling and Bear Trucking in the Moran action. In particular, Lexington contends that Sentry breached the implied covenant by failing to accept numerous reasonable settlement offers within its limits, failing to consider all settlement offers, failing to attempt to reach a reasonable settlement, and failing to consider the interests of the insured's equally with its own. On July 20, 2007, Lexington demanded that Sentry fully indemnify its insureds for the entire judgment due to Sentry's alleged breach of duty of good faith and dealing.

In August 2007, Bear Trucking and Mr. Knieling filed an appeal in the Moran action, with Sentry and Lexington, posting their respective shares of the appeal bond. A mediation between the remaining Moran Action parties, Sentry Select, and Lexington occurred on November 19, 2007. In March 2008, the Moran action settled for $2.25 million, with Sentry Select paying $1,034,968.20 under the Sentry Policy (its remaining policy plus costs) and Lexington paying $1,215,031.80 under the Lexington policy.

On September 2, 2008, Lexington filed the instant action in the Fresno County Superior Court (Case No. 08 CECG03015AMC) against Sentry, alleging breach of contractual obligations. Lexington filed a first amended complaint ("FAC") on September 4, 2008, alleging equitable subrogation and equitable indemnity causes of action based on Sentry's alleged acts of bad faith in defending Bear Trucking and Mr. Knieling. Lexington is seeking $1,215,031.80 for settlement contributions for Lexington's contributions, $137,485.90 for prejudgment interest, $10,325.40 for appeal bond premium, and $2,137.50 for mediation costs. The FAC also alleges a third cause of action for declaratory relief. Sentry removed the action on October 10, 2008.

C. The Basis for the Proposed Supplemental Answer and Counterclaim The Bustos Action

According to the allegations in the proposed counterclaim, on or about June 28, 2007, Arthur L. Bustos,*fn3 filed a complaint for wrongful death, loss of consortium, and other damages in New Mexico, in the San Miguel County Court, against Hamilton Big Country Ford Inc., Joe Narciso Madrid, Dan Regalado, and Lorise Madrid. (Case No. D412CV200700349) (the "Bustos I action"). Joe Narciso Madrid and Dan Regalado were employees of Hamilton Big Country Ford, Inc., and were alleged to have negligently entrusted a vehicle to Lorise Madrid. The complaint alleged that on or about May 8, 2007, Lorise Madrid went to the Hamilton Big Country Ford dealership to test drive a 2003 Chevrolet Cruise Cab ...

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